Making The Case For Offshore In Testing Times – Monaco Conference Report

Tom Burroughes Group Editor 16 May 2023

Making The Case For Offshore In Testing Times – Monaco Conference Report

Wealth structuring, the right way to own a yacht, the challenges for startup backers and the concerns of the NextGen were all put under the spotlight in Monaco at a conference attended by this news service.

Offshore centres prevent people from being taxed twice, sharpen competition for capital at a time of rising regulation and tax, and they have reputations for safety, high quality of life and expertise that deserve respect, a conference in Monaco has heard.

International centres, homes to trillions of dollars of cross-border assets, are important parts of the global financial jigsaw and have built clusters of expertise around structuring wealth, as well as for services ranging from yacht registration through to advice on NextGen wealth transfer. These were some of the messages coming from the TrustConsult Annual Conference, held at the Fairmont Monaco hotel in the principality. The conference was attended by 110 guests.

Christian Bühlmann, group chairman and founding partner of TrustConsult Group, said in his introductory remarks that much of the world had a “one-sided” view of IFCs such as Monaco, while many nations’ tax and spending ran at high levels. As part of the case for IFCs, he said it was important to defend legitimate financial privacy, noting recent calls by policymakers in Europe for public registers of beneficial ownership. In the present environment, there is an “incredible regulatory inflation,” Bühlmann said. This required the industry to “all learn new regulatory language.”

One important feature of IFCs is that they prevent the iniquity of double taxation (where people have to pay taxes in two countries if they are resident in one and have income and gains somewhere else). “We should not be ashamed to avoid double taxation,” Bühlmann said.

The nexus of relations between Monaco, the UK and Switzerland – and tax residency issues in each – were discussed in the first panel. Panellists were Cecile Civiale Vuillier, CEO of TrustConsult Suisse; Daniel Zappelli, founding partner of VSZ Attorneys at Law; Kyra Motley, partner at Boodle Hatfield, London, and Hanna Darrien, legal and tax director at Monaco United Advisors, a multi-family office.

Many of those considering moving to Monaco are entrepreneurs, from where they also wish to keep creating wealth, Darrien told the panel. The jurisdiction has many appealing points, and one of the best is its security. “There’s no wealth tax in Monaco, no personal tax…it is an important business hub,” she said. 

“People are attracted to Monaco for the security and way of life. High net worth clients find it very comfortable and safe,” Civiale Vuillier said. 

London is an obviously famous international city; those who wish to go there have to be careful about their citizenship if they are Monaco citizens because of the 90-day rule [which says one can only spend 90 days outside the principality], Motley said. About a decade ago, the 90-day rule was tightened up and put on a statutory basis, she said. Motley elaborated on the UK’s own residential non-domiciled regime, which the UK opposition Labour Party wishes to end. Furthermore, the fact that the UK's inheritance tax “nil-rate” band hasn’t risen in line with inflation is a concern because a wider share of the UK public – not just HNW individuals – are coming into its net, the conference heard.

Zappelli, a former Geneva attorney general, noted that while Switzerland today is a “safe haven, it’s not necessarily a tax haven.” He noted recent stories of how HNW Norwegians, business owners for example, want to locate to Switzerland to avoid the impact of the Nordic state’s new wealth tax. Switzerland operates a “lump sum” tax system, a process for foreign nationals domiciled in the Alpine state but not gainfully employed there. “If you are young and wanted to work they probably wouldn’t want to come there unless they were working abroad,” Zappelli said. 

Some people as young as 30 who have made money have come to Switzerland because of the safety, the high quality of education for their children,” Civiale Vuillier said. “Before, we had clients who automatically looked at the UK first before Switzerland,” she said, but that’s now changed.

Boodle Hatfield’s Motley said that when the non-dom system in the UK was tightened up (so that a person cannot be a non-dom for more than 15 years) it was expected this would lead to a mass exodus, and Brexit was also thought as causing a big outflow. However, this has not happened to the extent feared, she said. 

Returning to the Swiss situation, Zappelli noted that since the Russian invasion of Ukraine in 2022 and the measures against Moscow, Swiss authorities have tightened entrance requirements. Unfortunately, more work has to be done by people to prove their innocence of wrongdoing, he said. “I spend a lot of time proving that people are not guilty of what they are accused of.”

Zappelli also told the audience that those who violate Switzerland’s residency conditions can be found out if, for example, they put up social media posts that let authorities know they are outside Switzerland more than they should be. He gave a real-life example of such a case, which led to a person losing their residency permit.

Attitudes towards jurisdictions and behaviour have changed, Motley said, noting that people increasingly want to avoid getting reputations for trying to game the tax system. 

Protecting luxury assets
The second panel examined the topic of protecting high-value assets luxury assets such as yachts – a suitable subject for a Mediterranean jurisdiction such as Monaco. Panellists were Tim Searle, chairman of Globaleye, Dubai; Alex von Stein, a yacht industry expert; Rudy Capildeo, partner at Wedlake Bell, Luxembourg, and Gregoire Mure, CEO of TrustConsult, Luxembourg.

The world’s luxury yacht industry is a “multi-billion dollar cottage industry” that isn’t regulated, von Stein noted, adding that advisors to would-be yacht owners needed to be mindful of the conflicting pressures such people operated under. “An acquisition of a yacht is also not a rational decision but an emotional decision,” he said. “When it comes to buying a yacht, the brain switches off.” It is important for people to consult their family office or some kind of trusted advisor before buying a yacht, he said. 

Advisors needed to be aware of the people in a yacht-owner’s orbit – there could be as many as 20 to 25 such people. People often did not realise what owning a yacht entailed. However, Covid-19 ironically boosted the sector because wealthy families who lived on them enjoyed the freedom to travel and safety.

Capildeo noted that structuring high-value assets was often not embarked upon until an owner realised he or she had a large number of them, and that structuring was necessary. High-value assets could include items such as classic cars, fine art, fine wine, types of real estate and jewellery. What was notable was that clients often tended to be already highly educated about some of the issues, he said.
It was easy to be misled by sales pitches by auction houses, he continued, for instance when a person claims that “Now has never been a better time to sell.”

Searle told the conference: “I’m the guy who tells them that they are going to be taxed if you haven’t structured things correctly.” He described how his firm offers clients solutions, such as life insurance, so they have the resources necessary as and when inheritance taxes, for example, take effect.

TrustConsult’s Mure talked about tools such as the securitisation of an asset into a bond that can be then be used as a robust way to protect assets.

Privacy for such assets is important, the conference heard. “People don’t want their name associated all over the place…with a yacht,” von Stein said. 

Searle said insurance-based solutions need to be more fully appreciated. “Any kind of insurance is expensive but not as expensive as not having it.” A number of HNW families in the UK who have assets outside the country and who think they can avoid inheritance taxes and other taxes have found out this isn’t the case, and need to manage it. “This is a huge issue and there are lots of misunderstandings,” he said.

In the third panel, the audience heard views about the role IFCs such as Monaco play in steering capital to areas such as business startups. Panellists were Patrice Sauro, executive director, TrustConsult Group in Luxembourg; Pascal Widmer, founding partner at Alpana Ventures, Switzerland, and Sebastian Sanchez, senior advisor, Monaco United Advisors.

Sanchez discussed the different types of structures that startups seek to use in raising funds, with much depending on what the goals of a business are, where a business is going to operate, etc. Sauro talked about two broad types of enterprises he deals with: entrepreneurs with business plans ready and which need financial instruments for fund-raising, and entrepreneurs with a business plan but not a completed enterprise. 

Widmer said his firm mostly takes minority stakes in firms, and has a medium-term time horizon for investments. His firm is looking at reaching multiples of around 3 to 5 times the investment over a 10-year period. 

One useful instrument for early-stage firms, which might not have built revenue yet, is convertible debt. This was considered more attractive to lenders than outright debt. Convertibles had attractions in a growing economy, Widmer said. 

“Malta has a very interesting ecosystem here but it has not adapted to startups,” Sauro said.

In the fourth and final panel, there was a discussion about what can be done to support younger clients.

Von Stein (see above) said it was important to distinguish between inheritors and those who have “come up from nothing.” Among younger HNW individuals, their use of assets has changed; they are less interested in owning a luxury asset and more likely to rent and share it. “They are hyper-mobile,” he said. 

Nick Jacob, partner from Forsters, in London, said it is essential to let younger adults think that their concerns are appreciated and taken on board. There is also, he said, a misunderstanding about what family governance is about: “It is about trying to keep family harmony, generally in a business environment.”

Bühlmann, speaking on this panel, said he thought that some NextGen’s requirements for investing, such as aspects of de-carbonisation, were unrealistic. He cited the recent U-turns by German car manufacturers about internal combustion engine production as an example of limits to how far ESG investing could go.

Jacob said family discussions about business succession and control could be tough. One of the most difficult tasks was for a business founder to tell one of his/her children that they weren’t competent to take over.

Von Stein said families are taking a more nuanced view of what their children could enjoy and inherit. With luxury yachts, for example, he said families are often buying sailing yachts to encourage their kids to learn how to handle a boat and understand the skills, rather than just travelling around on a big motorboat. Elsewhere, there has been a surge of interest in buying exploration vessels and trips to study unusual marine environments.

Register for WealthBriefing today

Gain access to regular and exclusive research on the global wealth management sector along with the opportunity to attend industry events such as exclusive invites to Breakfast Briefings and Summits in the major wealth management centres and industry leading awards programmes